When asked if he could give three key risks that would
scupper his bullish expectations for the year ahead, one senior
equity capital markets banker at a US firm simply says: "Macro,
macro and macro".

While such a response is a fine example of ducking a
specific question, it is true that global markets will once
again play hostage to a litany of macro risks this year, just
as they have in the last several years.

With snap Greek elections looming, the talk as 2014 ended
was on a familiar note of the possibility of a Grexit from the
EU in the year to come. Investors naïve enough to buy
Greek bonds yielding less than 5% earlier in the year were left
nursing losses of at least 40 cents on the dollar.

The country may have managed to add 0.16% to its landmass
last year, but its economy has been hammered by western
sanctions and falling energy prices. The figures already paint
a bleak picture. The rouble’s value has collapsed
on the back of a plummeting oil price and the impact of
economic sanctions. The economy looks likely to enter a severe
recession.

Moreover, rising geopolitical tensions and falling oil
prices have led to a myriad of worrying developments in the
Russian economy: private capital has been fleeing the country;
the country’s international reserves have fallen
by almost $100 billion in about 12 months; many
Russian banks were left facing the near-collapse of their
dollar deposits.

Russian corporates have been similarly impacted. The
country’s financial institutions and companies
face being shut out of the capital markets in a year when about
$100 billion of foreign currency debt needs to be
refinanced.

Depending on the scale of the coming crisis,
Russia’s foreign-owned banks could yet prove more
vulnerable than they look. Even ruling out a complete market
meltdown, which would likely see runs on every bank but
Sberbank, it is not hard to envisage a scenario in which
foreign subsidiaries could come under pressure. To date, the
Russian regulator has maintained an admirably
non-discriminatory approach towards western lenders, but that
could change if domestic banks start to show serious signs of
stress.

Policy options could then include encouraging companies to
shift deposits to domestic banks and refusing liquidity support
to foreign subsidiaries, not to mention making use of some of
the more subtle tools at the disposal of the Russian
authorities.

If the situation were to deteriorate sharply, parent groups
of foreign banks in Russia could face a very tough decision
over whether or not to continue to support their Russian
subsidiaries. Providing more capital and funding to an economy
on the verge of collapse would be unlikely to find favour with
either shareholders or home regulators.

With western sanctions having a big impact on Russian
institutions’ ability to roll-over debt in
international debt markets, this could fuel further capital
outflows. While rating agency Moody’s has argued
that "most [Russian] companies have sufficient liquidity to
enable them to meet their 2015 debt maturities", they think the
numbers for 2016 and 2017 are a concern. And in financial
markets, a 2016 problem can swiftly become a problem for
2015.

Russian authorities may claim they have the tools to deal
with these pressures, but the broader economic and geopolitical
situation might constrain their actions, especially any
continued fall in the oil price. Estimates suggest that Russia
needs an oil price of $90 a barrel to avoid recession and
balance the budget. At the end of 2014 the price was well short
of that, at just above $60.

Another dynamic in play is what Putin could do with his
rising popularity for the annexation of Crimea. Some analysts
warn he might look to distract from a struggling domestic
economy with further foreign adventures in 2015.

Further reading on Euromoney

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